good morning, and welcome to a special edition of "this week." >> the hour for immediate action is here. >> there's no doubt about that. with less than two days before america plunges over the fiscal cliff, lawmakers are finally saying, let's make a deal. >> i'm hopeful and optimistic. >> whatever we come up with will be imperfect, and some people won't like it. >> what will the imperfect solution look like? even if there is a deal, will it be able to pass? and why does it always come to this? >> this is deja vu all over again. >> we'll ask our headliners. from the senate, democrat chuck

schumer and republican jon kyl. from the house, democrat chris van hollen and republican raul labrador. in our powerhouse roundtable on all the week's politics with former vermont governor howard dean, former minnesota governor "vanity fair" and maggie haberman of politico. you are looking at live pictures of capitol hill. over the next 12 hours, what happens there or what doesn't happen will cut to the very heart of your financial future and the fate of our struggling economy. good morning, i'm jonathan karl with a special edition of "this week." george is off for the holidays. the world is watching and waiting to see what happens here today in washington. at this hour, congressional leaders are working to find common ground, desperate for some sort of compromise. my sources tell me this morning the odds of a deal are still no

better than 50/50. the senate will convene today at 1:00 p.m., the house back in at 2:00 p.m. stock markets around the world are on edge. the dow down five days in a row falling nearly 160 points friday and early indications are those losses could be much worse if there is no deal. consumers are jittery too. their confidence in the economy plunging for the second straight month falling to its lowest level since august. so that's where we begin. let's get the latest from two top senate leaders. joining us now, senator chuck schumer of new york, senator jon kyl of arizona. so, gentlemen, do we have a deal? >> well, there are certainly no breakthroughs yet between senator mcconnell and senator reid, but there's a real possibility of a deal. i've been a legislator for 37 years, and i've watched how these things work. on these big, big agreements they almost always happen at the last minute. neither side likes to give up its position. they eyeball each other till the very end.

but then each side, realizing that the alternative is worse, comes to an agreement. so while an agreement is hardly a certainty, i certainly wouldn't rule it out at this last minute. >> give me your odds. i said 50/50. >> i think a little higher than that. >> senator kyl? >> i don't disagree with chuck, and i also would say the way you opened the program does not under or overstate the consequences. if we are not able to reach an agreement, it will be dire. and that's from everybody from the congressional budget office which is nonpartisan, as you know, to the fed chairman, probably at least another million jobs lost, an unemployment rate over 9% and putting us back into recession. so responsible people on both sides of the aisle do need to try to come together, and there is a significant effort under way right now. >> but let's understand what we're talking about. what kind of a deal? this is a -- the bare minimum, as the president said? what would this deal include? >> well, obviously i think all of us would have preferred the

grand bargain, so to speak, of a $4 trillion deal. that can't happen at the last minute, but to avoid going over the fiscal cliff, to avoid taxes being raised on middle class folks and on 98% of america to avoid, in my view, a sequestration that would be very damaging to the defense and nondefense sides, there's an agreement that's possible, and, you know, there are four issues that are outstanding. each of them is bridgeable in a certain way. they are, we believe that the bush tax cuts should go up for people above $250,000 income a year. there is a disagreement on estate tax. we prefer the 2009 levels. jon would prefer something else. whether unemployment insurance is included in, we feel that's very important, and then whether you use some small portion of the revenues you gain from the tax increases to pay down sequestration per year. those would be the four areas they have to come to agreement on. there are some areas i think

there is agreement. dealing with the amt patch so that middle class people don't go up, the sgr, the medicare and some tax expenditures on business and middle -- >> let's be clear here. you're talking about extending tax cuts for most americans, you're talking about some more spending, this would be extending unemployment benefits. you're not talking about any of the hard stuff. i mean, this doesn't do anything. as a matter of fact, "the wall street journal" looked at the outlines and projected you'd actually add to the deficit as a result of a mini deal over the next period. >> yeah, jonathan, some people have tried to talk about the reductions in spending that are necessary to get our fiscal house in order. that would be the republican side. the president and a lot of folks in his party have shied away from those discussions, and i think chuck is accurate in saying that that's not going to happen in this conversation but it should. you are right. i can quote from the "the washington post" editorial just a few days ago in which

they chastised the president for not following through on his campaign promises to talk about a balanced solution, one that would involve both tax revenue and savings. ironically, the revenue that's produced in the president's proposals is about the same amount of money we're going to be spending just to provide disaster relief because of the hurricane to some of the folks on the east coast. >> now, wait. i don't think that's fair to the president. the president had put serious spending cuts on the table. he and speaker boehner a week and a half ago were this close in a $4 trillion deal, they were 200 billion apart on revenues and 200 billion apart on cuts and then what happened, all of a sudden, speaker boehner decided to do this plan b. he went back and for a week tried to raise the amount that you would extend the bush tax cuts to people over a million dollars, couldn't get -- the plan was flawed from the beginning. instead of trying to get a bipartisan deal with democrats

and republicans, he tried to win over the 50 most hard right conservatives in his body. it fell -- wait, wait, it fell apart, and it's leading us to this last minute, so our choice is simple. avoid the fiscal cliff and people's taxes going up or do nothing and let it happen. we didn't want to be in that position, but speaker boehner pulled out of the deal a week and a half ago. it's not fair to blame the president. >> but i've got to ago you this question because this is one f the big sticking points left. whose taxes go up, people making over $250,000 as the president wants or republicans suggested nobody or people making over a million dollars, but you, senator schumer, had proposed raising taxes only on those making over a million dollars. and i want to take a look at what you said about this proposal going up $250,000 last year. you said "in the eyes of many, it is hard to ask households making $250,000 or $300,000 a year. in large parts of the country, that kind of income does not get you a big home or lots of vacations or anything else that is associated with wealth. it also would affect too many

small businesses." weren't you right back then when you said it would be wrong to raise taxes on those? >> we offered that to our republican colleagues two years ago when the political landscape was different. they rejected it and then the president sticking to 250 campaigned on openly, overtly. he won the election on it overwhelmingly on that issue, 60% of the public was with him. so that is our position. it's a position that brings in more revenues, and what we have learned as the fiscal situation deteriorated, if you go much higher than 250 to raise the rest of the revenues you need, you're going to hurt the middle class as you take away their tax deductions. >> but you said back then -- >> so it's the right place to be. >> you said back then it would affect too many small businesses. frankly, you sound a little like senator kyl. >> the bottom line is very, very simple and that is that if you do -- if you go much above 250 you'll hurt the middle class even worse and small businesses even worse by having to take away tax deductions. that's not the place we were at two years ago. it is the place we're at now because the situation is deteriorating.

>> jonathan, it's exactly the opposite. the higher you set that level, the less small business you're going to hit, and you're exactly right, and chuck was right back when he talked about a million because the increase in the tax rates for individual taxpayers sweeps in about a million small business owners. remember, about half of small businesses are women owned, and it sweeps them up because they don't pay corporate tax rates. they pay as individuals. >> but -- >> but wait a second. that's counting big hedge funds as small businesses, big hollywood productions like oprah winfrey as small businesses. it affects very few. we all know mom and pop small businesses, the dry cleaner down the street and others, don't make millions and millions of dollars. >> and let's remember, all the tax cuts are set to expire on january 1st, so i've got to ask you, senator kyl, a lot of republicans, a lot of your colleagues, people you greatly respect have said, you know what, why don't we do 250. we've got to do what we can do. let's take a look. senator cornyn will replace you as the number two republican in

the senate said "i believe we're going to pass the 250,000 and below sooner or later. we really don't have that much leverage there because those rates go up by operation of law december 31st. i would focus on areas we have more leverage on." so why would the president agree to raise that limit by a dollar when you have so many republicans that -- >> i don't think you have so many republicans. that was one statement and the context was what is realistic as a deal given the president's adamant position he wouldn't compromise on anything above $200,000. let's just get back to the theory because chuck had it right the first time. the more people you sweep up in this big tax increase, the worse it will be for economy and small business and for workers. let me point out two interesting statistics. over half of the dividends paid by corporations go to people 65 years of age and older. in fact, a majority of adult americans own stock or -- let me

just make this point, so when the dividend rate goes up to 68.6%, which is the combined corporate and dividend rate, "a," corporations aren't going to pay dividends, and, "b," if you are one of those seniors who get it you'll be taxed 68% and secondly the death tax. 55% rate -- how fair -- >> let's go to the death tax. 6,000 of the wealthiest wealthiest estates are the difference between what president obama wants and jon kyl wants, $119 billion over ten years. for those 600,000 estates to give $119 billion away and instead take it out on cuts on medicare and roads and education is unconscionable. >> if you look at the bigger picture for a second, we've known for two years that these tax cuts would be expiring the day after tomorrow or the end of the day tomorrow. we've known these automatic cuts, the so-called -- this was going to be happening for more than a year.

aren't you a little embarrassed as leaders in the congress that it has gotten to this point that tomorrow is new year's eve, the day it all expires, and you still don't have an agreement? i mean, we've been having this argument for two years. >> it is embarrassing but almost every disagreement we've had is not because of a senate where we've had lots of -- we've come to agreement on many things. there are 50 hard right people in the house who don't want to compromise. they don't believe in any revenues. they say compromise is a dirty word, and speaker boehner just as recently as last week played their tune. you cannot make a deal -- >> okay, but -- >> if you're going to let the people who are the hardest right and uncompromising dictate what we should do. so it's embarrassing, but i am hopeful in the new year after speaker boehner is re-elected and he doesn't have to worry about those 50, that he will start working in a way like the senate works a little more, which is democrats and republicans together, a majority of each party deciding and the extreme not deciding. >> let me get a word in edgewise here. on december 14th, here's what

"the washington post" concluded an editorial by saying, "there's no way to fix america's problem without doing something on entitlement. if the democrats and mr. obama in particular don't get more seriously into that discussion, they have no standing to complain about the republicans' lack of balance." this is not just a problem with the house, the house passed legislation that would overt the fiscal cliff, both on the sequestration side and on the tax rate side. they've already acted. >> i've -- >> that was vouchering medicare and no one wants to do that. >> i've got to ask you, senator kyl, though, there was a fascinating column yesterday by a conservative, mark thiessen in "the washington post" making the case for allowing all of the tax cuts to expire. let's take a look at what he said. he said "shopping on a credit card is fun until the bill comes due. but if the bill never arrives, what incentive do people have to stop spending? big government is great if you don't have to pay for it. well, now it's time to pay for the bill. maybe when the costs of the stimulus, obamacare and exploding entitlements are

finally deducted from their paychecks, americans will rediscover the virtue of smaller government." doesn't he have a point? if we have expanded the size of government so much under president bush and president obama, isn't it time to see somebody pay higher taxes? >> well, the way to economic recovery and growth is not by raising tax rates on the very people that employ the workers you want to keep working. raising taxes is not going to provide the kind of growth that we need in the country to lift the people in the middle income and lower income brackets higher and to provide the capital that's necessary to invest in the markets to hire more people. that's why both senator schumer and i are committed to trying to resolve this cliff problem because, yes, it would be a very difficult thing, and if you want to go back into a recession and lose a million more jobs, then just talk about -- >> see, there is one place we agree. nobody wants to raise taxes on people below 250, and that will

be the impetus and why both of us have some degree of optimism that we can avoid this fiscal cliff in the next 24 hours. >> okay, we are just about out of time. i want the bottom line from both of you even if senators reid and mcconnell come to a deal. you're the top republican vote counter. will it pass and will it fly in the house? will this be done in time? >> if there is enough in the agreement for republicans to be able to support it, and we can get a majority of republicans in the senate and a majority of democrats in the senate, then i think there's a good opportunity for a majority of democrats and republicans in the house to support such a package, and i think a lot of that depends upon whether president obama is willing to compromise this sort of fixation with raising taxes above anybody making more than $200,000 a year. >> reed and mcconnell are both very good leaders and vote counters. if they come to an agreement, they know that they will be able to carry a majority of each of their troops. the real question mark is the house. the house is a bit out of control.

they're the reason we've had the problems all along but my guess, if the house and senate agree and leader mcconnell agrees, the house will go along with it too. >> senator -- >> i would just say it is not out of control to want to do something about our runaway spending in our country. >> you've got to compromise. you've got to compromise. >> senator schumer, senator kyl, thank you very much for joining us and i hope you are right to be optimistic. up next the house has its say. are they ready to vote yes on a potential deal that may come from the senate? plus, our powerhouse roundtable waiting in the wings their take on the toxic environment in washington, the fiscal cliff and their predictions for 2013. we'll be right back. ♪ i feel fine ♪

[ male announcer ] navigating your future can be daunting without a financial plan. at pacific life, we can give you the tools to help you achieve financial independence. for more than 140 years, pacific life has assisted families and businesses in meeting their goals, even in uncertain economic times. let us help protect the things that you work so hard for. to find out how, visit pacificlife.com. ♪

let's turn now to the house. we're joined by democratic representative chris van hollen of maryland and republican representative raul labrador of idaho. so you just heard it from your senate counterparts. they appear to be close to a deal, a mini deal. will it fly in the house? >> well, the house is a real problem because as we know, speaker boehner, the republican speaker in the house, was unable to get his members to support his own plan, which said that we should ask people earning more than $1 million a year to pay a little bit more, and so speaker boehner is going to have to decide that he's going to allow

the house finally to vote on a deal, whatever may come out of the senate rather than -- rather than play republican caucus politics in the house. >> but i guess the question you can answer is the democrats. based -- the deal we're talking about now, which would not address the debt ceiling, which would extend tax cuts to whatever income level they agree to and do a couple of other things like extend unemployment benefits, would democrats en masse vote to support that in the house? >> well, jon, i think you know and we'll probably say the same thing on this, until we exactly what the senate is proposing, the senate couldn't tell us the details, it's impossible to know. it depends on the deal. all i know is democrats in the house are very determined to avoid going over the fiscal cliff, but we want to make sure that any agreement asks folks at the very high income levels to pay a little bit more to reduce our deficit, because if you don't ask them to pay a little bit more, everybody else gets hit that much harder. >> it's kind of funny to sit here and listen to chris and say

that it's the republicans in the house who are the problem. if you look at the budget that chris proposed two years ago, which was the alternative to the paul ryan budget, it only asked for tax increases from people making over a million dollars. there were only about 50 of us in the house who said that we were not going to vote for john boehner's deal last week. all they needed was 50 democrats to vote for the deal, and it would have passed last week but, no, he spent the entire day, the entire day of the deal, on the house floor attacking everything that john boehner was going to do. when john boehner actually tried to meet them halfway and now he comes here on national tv and he says that it's the republicans -- >> a little fact checking. raul, you got to get your facts right. the budget we brought and did have an alternative budget that got an overwhelming democratic vote did not say we're only going to raise taxes on people over a million dollars. it actually supported the president's proposals so you

got to check your facts. what we're asking for in the house is the same thing the republicans got in the senate. an up-or-down vote on their proposal. >> raising taxes on those making over $250,000 a year. >> that's right, but, jon, what we're saying is you don't have to agree with us, just allow a vote in the house. the republicans got a vote in the senate on their proposal. >> but let me ask you, though, because nancy pelosi, your leader in the house, had proposed the million dollar threshold. >> exactly. >> let's take a look at exactly what she said. i don't want to put words in anybody's mouth. this is nancy pelosi from march of this year. go ahead. >> i says let's begin by getting rid of tax cuts for people making over a million dollars a year. i'm not even saying 250. >> i know. >> the president is saying 250. i'm saying a million and above. who can argue with that? >> so who can argue with that? >> well, the question was whether -- >> only the democrats -- >> the issue is who could argue with over a million dollars and

obviously in the house, the republicans didn't even agree with their own speaker on a million dollars. look, the president, as we all know, as part of a larger agreement has said 400,000 should be the threshold as part of a larger agreement. the issue is the balance between the cuts and the revenue and what we have called for is balance. republicans in the house have refused even one penny so far from people earning more than a million dollars. >> which is your position -- so let me ask you, as i recall, when boehner proposed this -- a million dollars and above your answer was not just no but hell no. >> absolutely. >> given what they're talking about here will certainly raise taxes on people making less than a million, are you going to be hell no again? >> if it raises taxes and

doesn't cut any spending, which is what they're proposing, i think i would be -- i would be a no but you have to look at what's happening. the president first proposed two -- about a year and a half ago he proposed $800 billion and i love washington math. he proposed increases in revenues of $800 billion. then he goes to $1.2 billion. now after the elections he's going to $1.6 billion. he goes back that -- >> raul has to get his facts straight. the president's proposal -- >> they are the facts. >> -- well over a year ago. >> if you read bob woodward's book, it was $800 billion. >> look at the president's budget. look at the president's proposal to congress, september 2011, just take a look. it's on the internet. $1.6 trillion in revenue. >> right, but -- >> the president then -- that's what he proposed, raul, and then -- >> how many votes did that budget get? >> actually it got overwhelming support in the house despite the talking point you guys used. >> how many -- >> well, based on the republicans' plan got an overwhelming democratic vote -- >> it failed. the republicans have failed, as well. but i want to ask, republicans seem to be incredibly divided on this issue of taxes. you wouldn't even support your leader.

you wouldn't even support speaker boehner, a relatively modest increase of those making over a million dollars. charles krauthammer said that this is -- republicans are basically completely divided on this. here's what he said. "president obama's been using this, and i must say with great skill and ruthless skill and success, to fracture and basically shatter the republican opposition. his objective from the very beginning was to break the will of republicans in the house and to create an internal civil war, and he has done that." is that what we are seeing here? >> absolutely. >> a civil war -- >> i agree with charles. this has been what the democrats wanted to do from day one. they have tried to divide the republicans. they have tried to get us to fight against each other on taxes when i'm not really sure that they don't want to go over the fiscal cliff. you're going to have howard dean here a little bit later. he agrees with many democrats that what they need is actually more revenue. they want to expand the growth of government. they need more revenues, you know, democrats are like bank robbers.

you don't have the money and the 2% -- the money isn't in the -- they want to raise taxes on everyone. >> you're unwilling to compromise at all. >> i'm willing to compromise if we have real cuts. if we have real cuts because what happens in washington is that we talk about raising taxes today then we talk about cuts ten years from now. it happened under the reagan. it happened under bush and it's what's going to happen to us once again. >> jon, look, the proposal we put on the table, $1.2 trillion in cuts to include the interest savings and $1.2 trillion in revenue. they can't get that kind of balance package through a very right wing caucus in the house of representatives. the speaker is going to have -- >> we'll see about a smaller deal. congressman van hollen, thank you for joining us -- >> just remember -- >> congressman labrador -- >> the vote is 3-1 and now it's 1-1. >> thank you very much. >> we do have a raucous debate when it comes to the house, all right. we're out of time. >> i'm afraid -- still to come, this picture of president and mrs. obama was the most retweeted photo of all

time. will it be one of our powerhouse roundtable's defining moments of 2012? stick around and find out. we'll be right back. ♪ all you need is love love ♪ love is all you need to the best vacation spot on earth. (all) the gulf! it doesn't matter which of our great states folks visit. mississippi, alabama, louisiana or florida, they're gonna love it. shaul, your alabama hospitality is incredible. thanks, karen. love your mississippi outdoors. i vote for your florida beaches, dawn. bill, this louisiana seafood is delicious. we're having such a great year on the gulf, we've decided to put aside our rivalry. now is the perfect time to visit anyone of our states. the beaches and waters couldn't be more beautiful. take a boat ride, go fishing or just lay in the sun. we've got coastline to explore and wildlife to photograph. and there's world class dining with our world famous seafood. so for a great vacation this year, come to the gulf. its all fabulous but i give florida the edge. right after mississippi. you mean alabama.

say louisiana or there's no dessert. this invitation is brought to you by bp and all of us who call the gulf home. let'for an idea.s - a grand idea called america. the idea that if you work hard, if you have a dream, if you work with your neighbors... you can do most anything. this led to other ideas like liberty and rock 'n' roll. to free markets, free enterprise, and free refills. it put a man on the moon and a phone in your pocket. our country's gone through a lot over the centuries and a half. but this idea isn't fragile. when times get tough, it rallies us as one. every day, more people believe in the american idea and when they do, the dream comes true.

we're grateful to be a part of it. [ buzzing ] bye dad. drive safe. k. love you. [ chirping, buzzing continues ] [ horn honks ] [ buzzing continues ] [ male announcer ] the sprint drive first app. blocks and replies to texts while you drive. we can live without the &. visit sprint.com/drive.

this country is just hurting right now. i'm like we need to stop worrying about politics and worry about people. >> sit down, get in a room and don't come out of that room until you've got this thing taken care of. >> it's absolutely ridiculous. i mean, it should have happened a long time ago. >> and if you have to get the job done, you need to get the job done. >> we heard the job is compromise. you have to work together to get the job done. >> i have very little faith that they're actually going to reach a deal, and that frustrates me greatly. >> if my job was to do something for four years and i couldn't do it, i deserve to be fired. >> the job has been done, finish up, let's go. we're all waiting. welcome back. there's no shortage of anger at

our political leaders out there for failing to do their job. let's bring in our powerhouse roundtable. we have todd purdum, national editor of "vanity fair." former vermont governor and founder of democracy for america, howard dean, maggie haberman, senior political reporter for politico and former minnesota governor tim pawlenty, now president and ceo of the financial services round table. thank you all for joining us. todd, we're talking about congress. this is a big moment for congress, obviously. but give us the perspective from the president's point of view. how important a moment right now is this going to be a test for president obama? >> i think it's a very big moment and sets the tone for a second term. he thinks he has the public behind him and campaigned on these issues and won. the problem is, individual members of the house who outpolled him in their districts don't share that view, so i think the stakes are very high for him, and he has got to deliver something too and he knows it and that's why he's back here and that's why maybe something will happen in the next 24 hours. >> you've seen the polls, governor pawlenty, by a large margin people right now are

blaming republicans for this mess and have made it clear that if we go over the fiscal cliff, it's going to be republicans that will pay the price. >> well, the polls, of course, are a reflection of a moment in time but, you know, i had some of these issues in minnesota. i had the first government shutdown in the history of my state and learned some things, jonathan. you have to have leverage in a negotiation, two, you can overplay your hand. if you corner one group so completely and leave them no way out, it's likely to blow up and the third and last thing i learned is if you do overplay your hand the ill will that comes from that can reside for a long time and spoil your chances to get things done down the road and president obama i think is in a very powerful position right now. he has some leverage but i think in the interest of the country and the interest of getting things done for the rest of his term, he should be mindful o of not overplaying his hand here. he has a good sound-bite, which is raise taxes on the wealthy from his perspective but hasn't given the republicans the good sound bite they need to do the deal. >> governor, you've been out there making quite consistently we should go over the fiscal cliff.

>> right, i think we're having a conversation about the short term and politics in washington which has pretty much been going on in the media since the election. but long term we have to worry about the deficit. this is a good deficit -- solid deficit reduction proposal. my great fear is they will make a deal and simply kick the can down the road and i think that may happen. it would be too bad. the right deal is to really take a big bite out of the deficit. you go back to the clinton tax rates and make some significant cuts and you cut the defense department, which hasn't been cut in 30 years. >> maggie, looks like we will get exactly what the governor just -- i mean assuming they get -- and what was your take listening to schumer and kyl? >> my take was there has not been that much progress. my take on labrador -- >> they sounded so optimistic. because that's where the deal >> well, they did. they both did because that's where the deal is being discussed in the senate. with the discussion with the house members that i found much

more contentious and sort of interesting about where we are and that i think is of real concern. i do think that some senate democrats and some liberal members of the house would like to see the cliff gone over. they think that is the best way to press a reset. i don't think that is where the president is. i really don't. i think that's what he is saying publicly but his second track, i need a deal for all the reasons -- >> if we go over the fiscal cliff, he can blame the republicans and he can do the tax cuts on the rich thing, he's the president. i mean, you know, as has been said, we don't really remember who the leader of the house was when hoover was president. i mean, you know -- ultimately it's his economy. >> it's his country and it's his economy and it's his government but i think one of the things that is instructive is that we are now down to such a tiny perspective deal, the tough issues are not being dealt with at all. even the sequestration which was supposed to be so horrible, these automatic cuts in defense, so horrible that we would never let them happen will almost certainly happen because

there is not time to deal with that in the next 24 hours. >> it's a sad -- >> the frustrating thing for me isn't this what we really need to do? i think washington is incapable of making a deal that will help the country. what we're talking about here is a deal that's going to help the politicians. it'll help the president. we're arguing it's going to help boehner. that is not the problem. the problem is we have a really big deficit that the economy is much stronger three years down the line than it was that we can stand this. now, i believe also that if we go over the cliff then the president has a lot more leverage. because then all of a sudden middle class people's taxes will rise and that will be bad for every politician in washington. maybe they'll actually get something done. but i think at this point at this late hour i think almost any deal they come up with is worse than going over the cliff. >> and let's be honest. the deal they're talking about would effectively reduce tax rates because it would extend some of these tax -- >> yeah. >> and it would increase spending so it would do exactly the opposite. >> exactly. it would make the deficit worse if they cut a deal. >> i mean, is that where we are, governor? >> no, i mean, jonathan, the -- >> only thing that makes the

problem worse. >> i hope not. this is a moment where people's backs are up against the wall. and there would be if there was an opportunity for a big deal but you need symmetry. if you are going to fly over the cliff, you need the tax cut or excuse me the president's argument on raising taxes but you also need those structural changes to get enough to support the deal. they haven't gotten to that point. they just haven't gotten to that point. >> the other thing that i think is important to remember here is that if we get a small deal and it is really what we're talking about, we'll be back here in a couple of weeks for a debt ceiling. the republicans think they have more leverage. democrats, some will privately agree with that. so, you know -- >> right, so we're going to be here in a situation where once again the credit of the united states is in question. we're at risk of defaulting because we've hit the debt ceiling. the president says he doesn't want to negotiate at all on this. i'm wondering what your position on this is, governor pawlenty, because i remember full well what you were arguing during the republican primaries, making the case that the republicans should not give in and raise the debt

ceiling unless they got a big price. take a listen. >> i've said all along don't do it unless you get something really good for it if you have to draw some lines in the sand. it's also a moment where you can push people's backs against the wall and get something significant. >> so you're now head of the financial services roundtable. is it still your position that republicans should push the president against the wall and not give in on the debt ceiling? >> well, the financial services is part of the economy, as well as the economy more broadly wants to avoid the cliff. we don't want a howard dean scream as the country bungee jumps into the cliff. >> a low. >> you might need one. i was right then, and i'm right now. >> but to answer your question, seriously -- and thank you, governor dean for your good sense of humor. >> thank you, tim. >> -- you've got to have moments in politics, you've got to have people get their backs up against the wall to do something big but you don't want to overplay your hand. >> aren't republicans playing

with fire? >> speaker boehner came out early, jonathan, and said, look, i'll raise revenues and also increase the debt ceiling. in that moment there was a signal that perhaps a bigger deal could have been done and then it fell apart but there was an acknowledgement that the debt ceiling would go up by speaker boehner. there was an acknowledgement that revenues would go up by speaker boehner, so the one wing of the plane you feed to fly over the cliff was being constructed pretty nicely on that side, but the other side, the real structural changes and entitlements never materialized. >> you see, i think the smart thing to do here is to go over the cliff and then do a big deal then wrap the debt ceiling, the cliff, the tax rates, the cuts all into one big deal. it's going to take some time but i think you can -- if you go over the cliff, you reduce the debt ceiling problem by $600 billion, so the debt ceiling gets postponed some more and that should give you enough time to do the deal. i think that's the way to go. obviously you can't let us go over the cliff on the debt ceiling. that's a much more serious problem. this is really not a cliff. we call it the fiscal curve, which is really what it is. >> it sounds catchy, governor.

>> i know. >> but let's take a look at the larger issue here, this kind of absurdity of being here at the end of the year with this situation. take a look. take a listen to how president obama put it on friday. >> this is deja vu all over again. america wonders why it is that in this town for some reason you can't get stuff done in an organized timetable. why everything always has to wait till the last minute. >> i think the president there was speaking for virtually everybody in the country but i was struck, todd, when he said this town as if he doesn't live in this town and has actually a pretty important address in this town. >> the painful lesson of his first term is the limitations of change within washington are pretty severe and, you know, he's talked about that often in the campaign, and that's one of the things he learned, so it will be interesting to see if we do go over the cliff whether the president can muster support among the public to say in a howard beale kind of moment or howard dean, we're not going to

take it anymore. we're mad as hell. as you pointed out a year ago we knew this and two years ago we knew the tax cuts, so i'm not sure why we should think two months now from will be better in terms of striking a deal on the debt ceiling or whatever it is. >> part of it is the incredible polarization of congress. >> terrible. it's built in a structural built-in polarization. >> let's take a look. nate silver, the guru of all things number when it comes to politics or sports, looked at what happened to the house of representatives. take a look. pretty striking numbers. we now have swing districts, districts within 5% of where the national vote was in the presidential race, there used to be 1992, 103 competitive swing districts. now there are just 35 districts out of 435 that are actually competitive, and then what he calls landslide districts, these are lopsided districts where there was more than 20% difference between the national race and what we have now, look, the number of landslide districts has almost doubled. these members of congress are now in a situation where they're

worried about a primary, and they are not concerned at all about appealing to the other party. >> it's actually a fairly simple fix which of course neither the republicans or the democrats are going to want, you do what the voters of florida and california did. you take redistricting out of the hands of legislators and put them in the hands of a public group, a nonpartisan group. it's worked in iowa for a long time and had some startling results in california and it's working in florida. this has been done by ballot by citizens rising up against their state legislatures and saying stop screwing around with our government. let's do it ourselves. >> this is what you saw with plan b, right? essentially this was the problem for boehner. true on both sides but this is why boehner was unable to get the votes that he needed for an alternative plan that was purely about a pr gimmick, basically his members did not want to take a vote on something that wasn't going to be real in the first place because of a fear of the primary, because of the threats over the norquist pledge and threatening primary people so i agree with you in terms of

the longer-term nonpartisan redistricting but in terms of the more immediate next couple of years, i'm not sure how you change it. >> what does it say about boehner's leadership? i mean, that was a pretty extraordinary moment when even with a larger majority that he's going to have in the next congress, he couldn't get his conference to agree on the bare minimum. >> well, i think it's some level it's not just leadership, it's math. in the old days president reagan and tip o'neill have a cocktail together and cut a deal that was pragmatic. you remember president reagan said he wouldn't raise the gas tax ever. his feet were in cement when he announced it and famously said, "the sound you hear is the sound of cement cracking." but back in the day there were enough people in both parties who were kind of in betweeners and they could accommodate a pragmatic solution. those days appear to be numerically over for the moment as your graph from nate silver just showed. even of the 35 swing districts, jonathan, those 35 aren't necessarily swing members of congress. probably half are fully committed to the right or left personally so you have a very

narrow sliver left of anybody who could be a hinge vote. everybody is entrenched hard left, hard right and there's very little room to maneuver in between. >> todd, you have a situation where the speaker doesn't have power. he doesn't have some of the tools he used to. earmarks, can't spread around extra special projects around to districts. >> can't control his freshmen. the notion that some of these lip pi freshmen go out and say things on a television program, the idea 40 years ago that sam rayburn would have had to deal with that is inconceivable that the breakdown in party and all the things we like to decry bad for democracy turns out in certain ways they were good for democracy. >> is boehner ultimately maybe through no fault of his own style the kind of political situation one of the weakest speakers of the house we have seen in modern times? >> he certainly in modern times and it's interesting because speaker pelosi was probably one of the strongest because she was in the same, you know, ballpark as her caucus and congressman boehner is just not.

>> can i say on this point in defense of speaker boehner, if you understand the dynamics of the current republican party and what it takes to go out publicly on the point and say, i'm going to raise revenues and i'm going to raise the debt ceiling, for him to do that early on in these discussions took great courage, a huge risk for him. so that was an exercise -- >> what have you been able -- >> that was an exercise of bold leadership. now, he wasn't able to deliver in that moment but it's very rare these days you see a leader willing to take that much risk or flack from his or her party so please don't take that as a sign of weakness. i think it's a sign of leadership. >> i think it is a sign of weakness and i'll tell you why. he must have known that was going to happen. the difference between what he did and what pelosi did to get the health care bill through, pelosi went through her caucus and broke every arm in the caucus that was giving her trouble and then made the announcement. boehner went out and made the announcement first then couldn't get his people. that's a leadership mistake. >> in that moment you have to concede, governor, she had it

within -- >> i think boehner does have courage and i think he could be a good speaker. he's just not tough enough. >> i don't agree with that. >> results show. >> look into the crystal ball here for the next couple of days. and we're going to get your predictions for next year, but just over the next couple of days, based on what you heard here today from the senators and the raucous discussion with the house members, each of you, do you think the deal is going to happen and if it happens will it pass house and senate? >> there will be a deal. i'm a little pessimistic at the moment. i hope they can get over the cliff and avoid the january 1st cutoff. my hope is they can put something together as early as january but i'm a little pessimistic whether they can get it done by december 31st midnight. >> i'm where the governor is. i think that the -- i understand that schumer and kyl are optimistic but there's not much coming out of the house right now that seems positive. i do think there will be some framework. >> i think it's the best thing for the country to go over the cliff right now. it's not a great -- >> will we? >> yeah, it's not a great thing but the best of all the alternative.

>> they'll have to do something and the market's reaction wednesday morning if they haven't done anything will be the next wedge. >> it will be although i predict ultimately if we go over the cliff and stay over the cliff, six months from now the dow will be at 15,000. the biggest uncertainty in the market is not taxes and blah, blah, blah, it's the size of the deficit. if you've gone over the cliff, you've done something serious about the deficit. all of a sudden the financial horizons look pretty good. >> okay, now we've ask eached of you to come up with your -- since this is the last show of the year. tell me what you felt were the defining or was the defining moment of 2012. start with you, governor pawlenty. >> well, for the presidential race it was the arrival of hurricane sandy. that was a moment that changed the dynamic. changed the coverage of the race. allowed the president to elevate his presence and message and persona in the race in a way that i think cemented or solidified or at least contributed greatly to his victory. >> i disagree completely. i think it was the 47% video. when that emerged, i think that that really was what sort of calcified the image of mitt

romney that the president's ads had been maintaining for months and i think it was very hard even with a poor debate performance from obama at first to come back from. >> in 1984 i knew mondale was going to lose when he gave his acceptance speech and said, the next president has to raise taxes. he won't tell you, i just did. this year i believed i knew that mitt romney was going to lose when he said, i will veto the d.r.e.a.m. act if it gets to my desk. when he said that in republican debate, i knew he couldn't get to 30% among latinos and i knew he was done. >> it sounds like an obvious answer but i think president obama's re-election will be seen by history as -- i think the way that he won, the way that he won so decisively, so clearly and with an electorate whose composition surprised the heck out of the republicans will make his second term seen as -- he can no longer be seen as sort of a flukey creation of the wars and the bush economy. he's actually -- >> i'll do a variation of that. election night, the amazing moment when fox news and all the other networks had called the

election, and karl rove went on to say, no, no, wait a minute. this is not over yet. a little reminder. >> we've got to be careful about calling things when we have like 991 votes separating the 2 candidates and a quarter of the vote yet to count. >> now, the reason why to me that was the defining moment is because the republicans were just shell-shocked. you guys really seemed to think you were going to win this. >> one thing to score a touchdown, another to do a victory dance in the end zone. there was a lot of data error and data bias and part of it i think is the commercialization of polling in a way that absurds the industrialization of the use of the polling data that biases -- >> maybe we can just listen to nate silver the next time. predictions for 2013. each have one. >> all right, well, i was going to say immigration reform is going to pass the united states congress and be signed into law by the president and also say there may be the re-emergence of arab spring-like protests in jordan. >> i think there will be progress in immigration reform, not on gun control. >> the relationship with israel will continue to deteriorate if

netanyahu is re-elected. >> gridlock will persist. >> okay. and my prediction, the washington nationals will win the national league pennant. >> whoa. >> and narrowly edging out his -- my friend gio gonzalez beating out stephen strasburg for the cy young award. all right. when we return we honor a man president obama called an american original plus with the cliff still looming, we'll ask our star financial panel the pressing question, is your money safe? we'll be right back. thank you very much. let's give thanks - for an idea. a grand idea called america. the idea that if you work hard, if you have a dream, if you work with your neighbors... you can do most anything. this led to other ideas

like liberty and rock 'n' roll. to free markets, free enterprise, and free refills. it put a man on the moon and a phone in your pocket. our country's gone through a lot over the centuries and a half. but this idea isn't fragile. when times get tough, it rallies us as one. every day, more people believe in the american idea and when they do, the dream comes true. we're grateful to be a part of it. that retiring some day is even an option for sean and me. how'd you get comfortable enough to know you could really do it? well, planning, of course. and we got a lot of good advice. a few years ago, your mom and i put some money into a pacific life fixed annuity. it guarantees us an income for the rest of our lives, whether social security is all there or not. hey, hey! ♪ [ laughs ]

[ male announcer ] to learn more about a guaranteed lifetime income from pacific life, visit pacificlife.com. and now we honor our fellow americans who served and sacrificed. this week the pentagon released the names of two service members killed in afghanistan. we also want to honor this sunday the man president george herbert walker bush called a true american patriot and one of the great military leaders of his generation, general norman schwarzkopf, who led u.s. forces to victory in the persian gulf war passed away this week at the age of 78. you can see our interview with norman schwarzkopf from "this week" during the 1991 invasion of iraq on our website at abcnews.com/thisweek. and when we return, how concerned are wall street and the world markets as we count down to the cliff? the answer when this special edition of "this week" returns. to the best vacation spot on earth.

(all) the gulf! it doesn't matter which of our great states folks visit. mississippi, alabama, louisiana or florida, they're gonna love it. shaul, your alabama hospitality is incredible. thanks, karen. love your mississippi outdoors. i vote for your florida beaches, dawn. bill, this louisiana seafood is delicious. we're having such a great year on the gulf, we've decided to put aside our rivalry. now is the perfect time to visit anyone of our states. the beaches and waters couldn't be more beautiful. take a boat ride, go fishing or just lay in the sun. we've got coastline to explore and wildlife to photograph. and there's world class dining with our world famous seafood. so for a great vacation this year, come to the gulf. its all fabulous but i give florida the edge. right after mississippi. you mean alabama. say louisiana or there's no dessert. this invitation is brought to you by bp and all of us who call the gulf home.

and there's fear out there that things could get a whole lot worse as investors count down to the final trading day of the year. we're joined now by abc's bianna golodryga and leigh gallagher of "fortune" magazine. thank you both for joining us. bianna, let me start with you. what happens on wall street the day after a deal goes down? if they don't actually make a deal.

>> well, look, jon, i don't have a crystal ball in front of me but we saw a 2% decline in the dow last week. if we don't have a deal, i think we'll continue to see a drop. i don't think it will be as huge of a drop and unfortunately to press washington's hands the way we saw in 2011 last summer and before t.a.r.p. was passed but ultimately when we get some sort of mini deal we will see a rally back up but again this only buys us a few weeks because as your panel noted we have the debt ceiling coming up in february. >> i mean the counters, will wall street reward this mini deal, or will it be seen as this really doesn't do anything? >> i think we may have a couple days' bounce, the market rallying back up a percentage point or two, but i think ultimately the eye is going to be in what happens in february when that debt ceiling comes up. >> and, leigh, have the markets really fully taken in the possibility that this may not happen? i get the sense that people assume, oh, they'll do this at the end, you know, deadline as

it always happens but i mean does the market see a failure, complete failure as a possibility here? >> you know, not quite yet. even though we saw this 158-point drop that bianna mentioned on friday and even though markets have been pretty unsteady actually ever since plan b failed in the house, that was really kind of the turning point where we started to see this shakiness, for the most part stocks had been building in the fact that there probably would be a deal, so things have changed in just the past week and i do think we'll see some major impact on wednesday if there is no deal because the market hasn't fully appreciated that yet. they don't kind of understand why this is happening, as most of the rest of us don't. >> but, leigh, don't you think the writing has sort of been on the wall the past few weeks. up until last week the dow was positive for the month and now all of a sudden we've seen a five-day decline. consumer confidence fell as jon mentioned at the top of the show for the second time in two months, so people are

starting to sense the impact and ceos, as well. >> they are and i think that's why if there is a last-minute deal we will see a rebound in the market and that will be pretty strong but ceos have been worried about this for months, if not years, i mean, this has been -- that's why we've seen this parade of basically a who's who of the fortune 500 has been traveling down to washington in batches since july, august, you know, they don't want this to happen. this is -- they don't know what this means for spending cuts, for tax cuts, this means they don't know what's going to happen to the economy and what's going to happen to the market and that means they can't plan and these companies build in their budgets for 2013 in june and july, so in many ways, this is going to be baked into the spending we see in 2013 already. >> and, bianna, you spoke just recently with the oracle of omaha, right? you spoke to warren buffet. what's his take on all of this? >> yeah, i asked him for his take. ever the optimist long term with regards to the u.s. economy. he gave us a statement as well. he said "the american economy has worked well since 1776,

albeit with periodic and sometimes severe interruptions, and will continue to do so. berkshire will invest a record amount again in 2013 in plant and equipment. what's right with america far outshadows what's wrong with washington." now, some could argue if we do get past this fiscal cliff and address the debt ceiling, 2013 could actually be a good year for the economy. the housing market continues to recover. we do see an energy boom, as well, but, you know, i spoke with former treasury secretary robert rubin, as well and i think he summed it up by saying this really was a missed opportunity that we're seeing right here for some sort of grand bargain for a big deal to address the debt limit here and so far we haven't been doing that. >> and, bianna, i would not count on these guys finally getting their act together in any significant way even if we get a mini deal. thank you so much to both of you. bianna and leigh, thank you for joining us here on "this week." finally your voice this week. today's question comes from christy miller jones

from facebook who says "my 16-year-old has a twitter account with 34,000 plus followers. where do you see journalism heading in 15 years? what advice to the next generation of journalists would you give?" well, thank you for that question, christy. i would say regardless of what form americans will get their news in the next 15 or 20 years my advice to the next generation of journalists is to remember the basics, know your history, try to get your facts straight, always strive to be fair and don't be afraid to admit when you've made a mistake. as for your 16-year-old's 30,000 twitter followers, can i get a retweet? you can follow me all week long online @jonkarl, and i'll answer some of your questions after the show. thank you for sharing part of your sunday with us. thank you. check out "world news" with david muir tonight. george will be back to start 2013 with a big bang sunday right here on "this week." [ male announcer ] this commercial is not about getting fios,

it's about getting fios. that moment after you finally got it that you actually get it.